Wednesday, September 19, 2012

Where Should You Spend Your Money?

There are several paths to
the second division. Short of absolute neglect, one of the fastest ways to get
there is to mistakenly identify a one-year fluke as the beginning of a
rock-solid trend.

At the close of action last
night, five of the 10 most expensive hitters in the American League and four of
the 10 most expensive hitters in the National League are poised to also be one
of the 10 biggest busts in their respective leagues. So the lesson is clear:
avoid the big ticket items. Right?

Not necessarily. There are good reasons to avoid the top hitters, but the fact that they are always big busts isn't one of them. This year is the
exception, not the rule. You're extremely likely to lose money on the most
expensive hitters in any given year, but historically there is only a 20-30% chance that you're going
to land one of the biggest busts.

Ten Most Expensive Hitters
Cost vs. Value 2009-2012

2009 A.L. Earned $24. Cost
$36 (67%)

2010 A.L. $25/$35 (71%)

2011 A.L. $24/$36 (67%)

2012 A.L. $23/$35 (66%)

2009 N.L. $31/$40 (78%)

2010 N.L. $28/$39 (72%)

2011 N.L. $33/$38 (87%)

2012 N.L. $28/$37 (76%)

This is a quick and dirty
look at the earnings versus the cost of the 10 most expensive hitters in the
American League and the National League since 2009. The percentage is the rate
of return on these hitters. With the exception of 2011 in the National League,
this looks pretty lousy, doesn't it?

Next Ten Most Expensive Hitters (11-20)
Cost vs. Value 2009-2012

2009 A.L. $24/$30 (80%)

2010 A.L. $19/$28 (68%)

2011 A.L. $24/$29 (83%)

2012 A.L. $19/$28 (68%)

2009 N.L. $23/$31 (74%)

2010 N.L. $23/$30 (72%)

2011 N.L. $26/$29 (90%)

2012 N.L. $24/$28 (86%)

The ROI on the top hitters is poor
compared to this group, but not as poor as you might think. This next best group of hitters does
lose money. Still, you'd rather have one of these hitters (on average) in any
given year than one of the top hitters. Part of this rationale is that while
you might be earning less money per hitter, you're leaving yourself with more
to spend later in the auction. For example, in 2011 in the American League a
$29 investment on one of the 11th to 20th most expensive hitters brought back
the same actual return...and left you with an extra $7 to spend elsewhere.
Unless you bought a $0 hitter, you did better simply by purchasing even a
marginal player.

All of this makes sense in the
abstract. In the concrete world of auction strategy, though, you don't want to
simply say no to any hitter at or over a certain price just because those
hitters as a group lose money. The usual common sense rules apply. You're more likely to
find a bargain at the top of the heap if you:

Pay less than what the player
earned the previous season

Buy players that offer power and
speed and not just one or the other

Avoid one year wonders and pay for
consistency

As
I've documented several times in this blog, all of this depends on your
auction climate as well. If your average salaries on the top players are lower
than $35 per player, this typically means that the ROI on the next group of
hitters will be higher...or that there will be higher salaries somewhere down
the line. You want bargains, but you don't want to pinch your pennies to the
point where you're spending $15 on the dregs of the auction in the middle or
late rounds.

These earnings results surprised me, to say the least (though that's why I
still do this after all these years). My assumption was that the ROI on the top
hitters as a percentage of the price paid was better. It turns out that this
isn't so. Owners that pay top dollar at auction are more likely
to get burned than by owners who sit back for at least a little bit and wait
for the next group of hitters.